Archive for April 18th, 2012

PDVSA’s Idiotic Financial Strategy

April 18, 2012

I like going through financial statements. I like understanding them, going through things, trying to figure out what is important and what is not. PDVSA’s used to be one of my favorite’s, there was so much to learn and understand there. Nowadays is not the same. While the financial numbers may be “correct” the underlying data is not. You can’t believe oil production or local oil consumption. Investment numbers are almost irrelevant, if credible.

The financials are so simplistic that our good friend Setty has told us that the half a billion dollars lost to the Illaramendi funds,. does not even deserve a mention in the financials, by PDVSA or by the auditors. Go Figure, half a billion dollars ripped-off, the company (we are told) replaced the money and this does not even deserve a note from the auditors!

So, I read the financials, without much interest, sure they generated revenue of US$124 billion, PDVSA now has 121 thousand workers versus 40,000 when Chavez decided to integrate into the Government by firing half the workers. Yadda, Yadda, Yadda!

But one thing did catch my attention, in 2010, PDVSA had “Accounts Receivable” for US$ 14.8 billion. For the uninitiated, this is money owed to PDVSA. Remarkably, this went up a lot from 2010 to 2011, a lot like more than doubled at US$ 30.88 billion.

Where did this doubling come from? Well, about US$ 6 billion of the increase came from “Energy Agreements” read oil shipped to other countries like Argentina, the Caribbean, Bielorussia and the like, which PDVSA sells to these “friendly” countries 50% up front, two or three years grace period and then last we hear, a twenty five year loan at 2-3% per year.

Another US$ 6 billion, came from “related entities”, these are things like Corpoelec and Pequiven, which simply don’t pay their oil bills to PDVSA. So, not only is PDVSA forced to give money to Fonden, which Fonden later gives to Corpoelec to fund projects, but these same projects use up oil, diesel and the like, but Corpoelec has no money to pay for it.

Would you run your family like this? Lend your son money, so he can start a business which runs on oil that you sell to him, but he never pays. Some business!

But the most remarkable thing, is that during 2011, PDVSA’s financial debt went up by US$ 11.1 billion, from US$ 21.3 billion to US$ 32.4 billion. The new debt comes mostly from new bonds issued with coupons as low as 8.5% and as high as 12.75% per year, say an average of 10% per year.

The bottom line is that PDVSA is paying over US$ 1 billion a year in financing, so that our wealthier friends in Argentina, Belaruss and the Caribbean (The exceptions are Cuba and Haiti, which are poorer) can have our cheap oil.

This is an idiotic financial strategy. As idiotic as can be. A country with poverty, a company with immense financial needs to even maintain production, should not, can not fund wealthier countries, so they can drive around further distances at cheaper prices, or stay warm, while Venezuelans die without medical service.

This is absolutely idiotic, this is treason, this is total disregard for your own people.

But these people have lost the notion of scale and magnitudes. To them a billion here a half a billion there is rounding error, while the truth is that each half billion can build a few dozen hospitals or a few thousand housing units.

But the revolution no longer cares. Survival is the name of the game. It is no longer the optimum allocation of scarce resources, but the optimum allocation of resources for reelection  and political gain.

Idiotic!

(BTW PDVSA’s financials are in PDVSA’s webpage, however, PDVSA must be the only company with a webpage that when you click on a link, the URL stays the same. Just go http://www.pdvsa.com, then click on Informes Financieros and then click on them, the URL will not change. I also tried to follow the route of these receivables and found it funny: One note would send me to another, which would send me to three others, which would send me to the original one. Very circular.)

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